Analyst Says Long-Term Investors In Shake Shack Should Continue Buying Shares

According to a Piper Jaffray report, which cited “years of interaction” with the Shake Shack Inc SHAK culture, Senior Research Analyst Nicole Regan initiated coverage on the burger joint with an Overweight rating and $44 price target.

Regan said she likes Shake Shack’s strong development of restaurants, as well as its solid unit-level economic numbers. She pointed out while Shake Shack’s build out costs is higher than many of their competitors, the higher average unit volumes, cash-on-cash returns and margins all justify the Overweight rating.

What's On The Menu?

Regan believes Shake Shack’s human capital investments, strong operations, and consistent solid earnings report as reasons to buy into the name.

“The unit-level economics delivering 30%+ cash-on-cash returns are best-in-class, and when paired with the company's culture of operational excellence we believe the brand is favorably positioned to double its unit base during the next five-year period," said Regan. "The success of future growth is grounded in an incredibly strong base of units in home markets supplemented with growth globally into new markets."

See Also: Wedbush Upgrades Shake Shack Shares, Sees 16% Upside From Here

In the report, Regan highlighted a long-term expectation for the company to boast 20 percent plus revenue driven by 20 percent unit growth and positive single digit same-store sales. Further, she believes earnings will double over the next five-year period.

Regan noted, “While shorter term same-store sales may remain relatively volatile, comps historically been driven by a healthy combination of price, mix and traffic gains. Positive same-store sales are a function of ongoing menu evolution, throughput initiatives as well as price; and, over time, the growth of off-premise sales.”

Overall, the Piper Jaffray analyst sees Shake Shake as a company that's “standing for something good,” and urges investors to not get too hung up on same-stores sales. The valuation suggests both short-term and long-term same-store sales will be volatile but positive. However, at the end of the day, Shake Shack is still going to see profits “increasing at a double-digit pace.”